New year brings resolutions to improve financial health

By Mella McEwen | mmcewen@mrt.com

Published
4:00 pm CST, Monday, January 5, 2015

File-This Dec. 31, 2013, file photo shows marchers making their way down Boylston Street during a parade as part of New Year's Eve celebrations in Boston. City and state officials will talk about safety preparations for Boston's annual New Year's Eve celebration as protesters plan to hold a demonstration against recent police killings of unarmed black men and boys. Boston Mayor Martin Walsh, Police Commissioner William Evans and other officials will discuss the preparations at City Hall on Tuesday, Dec. 30, 2014. Activists have promised to stage a "die-in" at Copley Square near some of the New Year’s Eve activities. (AP Photo/Michael Dwyer, File) less

File-This Dec. 31, 2013, file photo shows marchers making their way down Boylston Street during a parade as part of New Year's Eve celebrations in Boston. City and state officials will talk about safety ... more

Photo: Michael Dwyer

Photo: Michael Dwyer

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File-This Dec. 31, 2013, file photo shows marchers making their way down Boylston Street during a parade as part of New Year's Eve celebrations in Boston. City and state officials will talk about safety preparations for Boston's annual New Year's Eve celebration as protesters plan to hold a demonstration against recent police killings of unarmed black men and boys. Boston Mayor Martin Walsh, Police Commissioner William Evans and other officials will discuss the preparations at City Hall on Tuesday, Dec. 30, 2014. Activists have promised to stage a "die-in" at Copley Square near some of the New Year’s Eve activities. (AP Photo/Michael Dwyer, File) less

File-This Dec. 31, 2013, file photo shows marchers making their way down Boylston Street during a parade as part of New Year's Eve celebrations in Boston. City and state officials will talk about safety ... more

Photo: Michael Dwyer

New year brings resolutions to improve financial health

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Making resolutions as the new year dawns is a popular tradition, led by resolutions to get healthy, get in shape or go on a diet. Improving finances also ranks high among New Year’s resolutions.

As 2015 approaches, WalletHub, the personal finance social network, has released 15 resolutions for 2015. The resolutions begin with the basics, such as getting reacquainted with one’s finances, making a budget and getting out of debt and expands to resolutions like minding one’s health, giving to charity and helping other consumers.

“It’s starting with the first step, which is taking stock of your assets. Once you do that, you can move on to the next steps,” said Jill Gonzalez, spokeswoman for WalletHub.

Part of taking those steps is prioritizing purchases. She said some people consider getting the latest iPhone or their daily visit to Starbucks a necessity. “But it’s still a luxury,” she said.

Gonzaelz said many of the experts WalletHub talked with in preparing its list of resolutions referred to “minding your own health” as important. She explained that medical expenses are a leading cause of bankruptcy filings. Unexpected health expenses can cause stress, which can cause health problems, she said.

Gonzalez said finding “wiggle room” in a budget for charitable giving could benefit one’s physical and financial health.

Just like embarking on an exercise program or going on a diet, getting financially healthy requires commitment, Gonzalez said.

“It’s like resolving to cut out cupcakes,” she said. “By committing to making it a habit, by the end of the year you won’t notice what you gave up.”

The 15 for ’15 plan

1. Get reacquainted with your finances. Experts told WalletHub that means making adjustments as your situation changes year-to-year but identifying areas that need improvement and developments to take advantage of.

2. Make a budget. According to a survey from the National Foundation for Credit Counseling, only 39 percent of adults have a budget. The foundation said consumers are on pace to rack up at least $60 billion in credit card debt in 2017 and likely another $70 billion in 2015, raising the risk of another recession caused by overleveraging and increasing the importance of creating and maintaining a budget.

To make a budget, make a list of recurring expenses — such as housing, food and healthcare — compare those costs to monthly take-home pay. Cut any spending that exceeds your spending power.

3. Implement the island approach. WalletHub describes the island approach as a personal finance technique based on the theory of compartmentalization that encourages consumers to isolate different financial needs on different financial products — as if they are a chain of related islands. For example, this might entail getting one credit card for everyday purchases that you can pay off in full by the end of the month and another for revolving debt.

4. Automate as much as possible. Setting up recurring monthly payments can avoid missing due dates and help keep credit scores high. WalletHub warns you should still review your monthly statements to ensure you’re not being overcharged or being subject to fraud.

5. Build an emergency fund. WalletHub cites the National Financial Capability Study by the Financial Industry Regulatory Authority as finding 56 percent of Americans don’t have a rainy day fund. A fund equal to 12 to 18 months of take-home pay is optimal; that fund can be built up over time to avoid putting yourself in a financial squeeze.

6. Get out of debt. The previous steps will help with future debt, but existing debt also needs to be tackled. WalletHub recommends paying down highest-interest balances first and switching to 0 percent balance transfer credit cards and using a credit card calculator. That switch can save the average household over $1,000 in finance charges, WallletHub said.

7. Improve your credit score. WalletHub said the difference between good and bad credit is roughly $650 in credit card payments, $1,400 on an auto loan and $2,300 on mortgage loans each year. The best way to improve a score is to maintain an open credit card account in good standing.

8. Increase all savings by 15 percent. Put money aside not just for retirement, but for a child’s college fund, weddings or vacations. The best approach is setting up separate accounts that are filled with automatic monthly contributions from a bank account. The goal for 2015 should be boosting the value of each of those accounts by 15 percent.

9. Give back to charity. WalletHub said the nation’s goal in 2015 should be to top the $335 billion donated in 2013. The organization said if the average American worked an extra hour per week and donated the proceeds, that would equal over 7,200 meals, 2,200 measles vaccinations or a year of clean water to 160 refugees.

10. Do your taxes early. Starting your tax preparation early can avoid making math mistakes on their taxes, filing late or underpaying taxes, thus incurring expensive penalties. The extra time can also help you adjust your witholdings to avoid a tax deficiency or over or underpaying taxes.

11. Set a good financial example. Improving your own financial performance will give your children a good example. You should also give them hands-on monetary experience with games or a prepaid card, cash and later a checking account as they build their money-handling skills.

13. Mind your overall health. Getting your financial house in order, as well as other healthy practices such as exercise and a good diet, will pay financial and physical dividends.

14. Help other consumers. Share your experiences with different financial products, companies and professionals through consumer reviews.

15. Stress test your finances. Imagine the worst-case scenario — such as job loss, death or natural disaster — to determine if you have the savings, insurance and contingency plans in place to overcome those scenarios.